TORONTO, March 18 (Reuters) - The Canadian dollar CAD=D4
firmed against the U.S. currency on Friday, taking tame
inflation data in stride, as the focus returned to Japan's
nuclear crisis and a rise in oil prices on the prospect of
possible military action against Libya.

Market watchers also digested actions by the Group of Seven
rich nations to jointly intervene to weaken a soaring yen
JPY=. For more see [ID:nLDE72H19Z].

In a move to calm financial markets grappling with
continued anxiety over the crisis in quake-ravaged Japan, the
Bank of Japan bought billions of dollars, backed up by action
by European central banks. The Bank of Canada confirmed it took
part, as did the U.S. Federal Reserve. [ID:nTZOIEE7TJ]

The amount of yen sold by the Bank of Canada in its
intervention will be reflected in the country's foreign
reserves report in early April, a central bank spokesman said
on Friday.

The Department of Finance releases a monthly update on
foreign currency reserves on the third business day of every
month, making the next release due on April 5.

However, TD Securities analysts noted that Canada's yen
reserves are relatively small at $252 million as of March 3 and
that any movement in the yen versus the Canadian unit is more
likely to be dictated by Fed action than by that of the
Canadian central bank.

"Canada doesn't hold a ton of reserves in JPY, and can only
do so much with CAD/JPY specifically," TD Securities said.

The Canadian dollar recently weakened against the yen, with
one Canadian dollar buying at as little as 78.03 yen on
Thursday, a level not seen since April, 2009.

It jumped as high as 83.21 yen immediately after the Bank
of Canada confirmed it was intervening. CADJPY=

TAME INFLATION

The currency held overnight gains as Canada's annual
inflation rate in February cooled to 2.2 percent from 2.3
percent in January, just below the consensus forecast of 2.3
percent, and the core rate fell to its lowest level on record
at 0.9 percent. [ID:nSCLIEE7AG]

The Canadian dollar "will probably get buffeted by
geopolitical developments, particularly with things in the
Middle East," said Paul Ferley, assistant chief economist at
Royal Bank of Canada.

Canada's currency, typically influenced by oil prices,
pushed higher as U.S. oil prices CLc1 rose after the United
Nations approved military action to contain Libyan leader
Muammar Gaddafi, heightening tensions in the oil-rich Middle
East. Libya said Friday it would call a cease-fire
. [O/R]

At 9:25 a.m. (1325 GMT), the currency was at C$0.9836 to
the U.S. dollar, or $1.0167, up from Thursday's North American
session close at C$0.9863 to the U.S. dollar, or $1.0139.

Government bonds were flat to mildly lower as developments
in Libya were offset by a rise in global stock markets.
[MKTS/GLOB]

The two-year Canadian government bond CA2YT=RR was off 1
Canadian cent to yield 1.608 percent, while the 10-year bond
CA10YT=RR was unchanged to yield 3.188 percent.